Did you triple your money in the past 7 years? Or quadruple it in the last decade? I did – from $100k to $300k. From 2012-2019. That’s the nature of passive index fund investing, making it relatively easy to double your money, and then some.
With a little under $100,000 invested in 2012, I tripled that money by 2019 in my securities portfolio. I had nothing fancier than a total stock market index fund and some bonds.
Imagine how long it would take a physician to save up $200k after taxes. That’s how much I profited from nothing more than keeping my money invested for 7 years.
Index Fund Investing
I realize that there are many ways to invest. From real estate to peer-to-peer lending to individual stocks to private equity. I’ve decided to invest the majority of my money in index funds. Hindsight bias so far confirms that it was a good choice.
A passive index fund exposes to me to a broad range of individual funds. My particular index of choice is the total US stock market. From the very small to the mega corporations.
Index funds don’t have sexy returns. They averaged 5.6% from 1999-2018 and 10% from 1926-2016. Nothing crazy, but damn powerful if you stayed in it for the long-run.
Rule 72 is just a mathematical equation which calculates how long it would take for your investment to double given a fixed annual rate of return.
At 10% it would take 7 years (72/10) for your money to double. Regardless of if you had $1 or $100,000 invested.
At 5.6% it would take 13 years (7/5.6) for your investment to double.
Doubling Your Money
I’m 41 years old and if I don’t touch my investments, assuming I will get a 5% return on my investment on average every year, I should double my money every 14 years.
My $500k should be worth $1,000,000 by age 55.
And $2m by age 69.
That’s without me adding any money to my portfolio. Imagine the power of investing and compounding returns if you also continue to contribute money to your portfolio.
Cutting Out The Risk
On my most recent podcast episode, #201, I talked about the risk of fishing for higher returns. There is no free lunch and you have to be willing to risk losing more of your money in order to get the higher returns.
10% or 15% or 25% returns are possible but it comes at a price. Whether you hedge against it or expose yourself to the naked risk, you have to be able to justify losing your money for these higher returns.
At 15% you could double your money every 5 years. At 25% you could double your money every 3 years!
Imagine putting all of the time and effort into your portfolio, day in and day out, in order to get those higher returns. Now, also imagine those sleepless nights and the hours spent worrying about losing your money because of all of the excess risk.
Yes, the market will always reward extra risk. But it will also punish you more frequently. I can might get spanked investing in index funds, sure. But the downside isn’t too bad; at least not historically.
Leave a Legacy
Imagine what you could do for the next generation with a conservative investment like this. Whether you are 30 or 80 years old, you can take $5,000 and invest it for your grandchildren or great grandchildren.
$5,000 invested in 2019 could grow to $100k in 50 years. That’s enough for a solid down payment on a house. Or enough for that person to buy their first real estate investment property.
In 100 years that $5,000 would be worth $2,000,000. I’m not making this up. You wouldn’t have to contribute any more than $5,000… just leave it alone and let it grow.